Senate Oks Estate Tax Repeal

Clinton's Threatened Veto Likely To Push Issue To The Campaign Trail

July 15, 2000|By Richard W. Stevenson, New York Times News Service.

WASHINGTON — The Senate voted Friday to repeal the federal estate tax, brushing aside a veto threat from President Clinton and giving Republicans at least a symbolic victory on an issue at the top of their election-year agenda.

The vote was 59-39. Although Democrats have long said repeal of the tax would be a hugely expensive giveaway to the rich, nine of 45 Democrats voted in favor of the legislation, reflecting the shifting politics of taxation at a time of widespread prosperity and growing federal budget surpluses. Four Republicans voted against.

The House passed identical legislation last month. Republican leaders said they would send the measure to the White House promptly and use Clinton's promised veto--which the vote on Friday suggested Senate supporters of the bill would be unable to override--to support their case that voters will not get tax cuts until a Republican becomes president.

Republicans presented the legislation, which would phase out the tax over the next decade, largely as an effort to help families pass farms and small businesses from one generation to another. Heirs are sometimes forced by the tax to sell part or all of an estate to pay the Internal Revenue Service.

But even under current law, the tax is levied on only a tiny proportion of estates, those worth more than $675,000, or $1.3 million in the case of family-owned farms and businesses. And in calling for full repeal of the tax for all types of estates, the bill's supporters had in mind some of their wealthiest constituents as well as the growing ranks of voters who have seen their net worth surge as the strong economy drives up the value of their homes and their holdings of stock and other investments.

Republicans said the tax was inherently unfair, arguing that there was no justification for the government to use death to make a claim on wealth amassed over a lifetime.

Democrats said they favored exempting family-owned farms and small businesses from the estate tax, and offered their own plan to do so. But they said the Republican plan, in going much further, amounted to a tax break worth hundreds of billions of dollars in coming decades to a tiny slice of extremely rich people.

"The proposal they offer is one that would give hundreds of billions of dollars to the largest estates in America," Sen. Byron Dorgan (D-N.D.) said of the GOP legislation.

In a statement, Clinton called the legislation "a budget-busting bill that provides a huge tax cut for the most well-off Americans at the expense of working families."

Charitable contributions are a common way for the wealthy to reduce their projected estate tax liability, and Clinton warned that repeal of the tax could also cut charitable donations by $5 billion to $6 billion a year.

"When this bill comes to my desk," he said, "I will veto it."

The bill would phase out the federal estate and gift tax--what Republicans call the "death tax"--in small steps over the next 10 years, with most of the tax disappearing only at the end of the decade.

Under current law, the amount of tax exemption for estates in general is already scheduled to rise to $1 million by 2006 from its current level of $675,000; the $1.3 million exemption for family farms and small businesses is already in effect. Above those limits, estates are subject to a graduated tax with a top rate of 55 percent.

The changes would reduce federal revenue by $104 billion over the first 10 years and by $750 billion in the second 10 years, according to the Treasury Department.

Because of the existing exemptions, the tax is levied on relatively few estates--an estimated 48,000 this year, or about 2 percent of all deaths. And the bulk of the tax is paid by a relatively small proportion of the estates that do get taxed.

In debating the bill, the Senate had adopted tax-cutting amendments, including a repeal of the 3 percent federal excise tax on phone service and the permanent extension of a corporate tax credit for research and experimentation costs.

But under orders from the Republican leadership, the Senate then voted Friday to strip out all amendments, intent on sending Clinton--and voters--an undiluted message about the majority's position on the estate tax.

Also Friday, the Senate began debating the next big Republican tax cut: a 10-year, $248 billion measure that would slash income taxes for millions of married couples, including 25 million who pay more than they would if single. Votes are expected next week.

Sending that bill to Clinton's desk is another preconvention political goal for Republicans.